Significant changes have taken place in the payment systems of American businesses. The growth of electronic pre-paid products, stored value cards, debit cards, and gift cards, both open and closed loop, have resulted in changing payment habits and business opportunities, new technologies, and new methods of distribution.
The market for pre-paid products, stored value cards, debit cards, and gift cards continues to grow. Traditionally, magnetic stripe plastic financial transaction cards have been sold individually at retail to be activated at the time of purchase, at the point of purchase. The purchaser at the point of purchase places a monetary amount on the card through register activation. That is, the buyer adds value to a previously valueless piece of plastic, and transforms the card into a monetary instrument. By adding a cash value to these zero balance cards, the cardholder can purchase services or merchandise at a cost up to the gift cards value on either a closed or open looped basis.
In many cases, the prepaid card buyer will insert the activated gift card into a greeting card, and then into an envelope, in order to create a gift or present that can be handed to or mailed to the intended recipient. The use of prepaid or stored value cards as gift items has sky rocketed over a comparatively short amount of time, affecting the sale and use of greeting cards specifically, and retailing, in general. The convenience and assured satisfaction of the recipient have factored greatly in the rise of gift cards.
The retailer benefits from this transaction because the consumer pays in advance of purchase to the seller of the gift card. No interest or guarantee of repayment is given, and the monetary value of the card can only be retrieved when the person in possession of the card makes a purchase from a specific retail brand in a closed loop situation, or almost any retailer in an open loop situation. Post-transaction, once the designated monetary value is reached, some open-loop cards may then be reloaded with additional funds.
In financial reality, consumers are, in essence, loaning large amounts of money, at no interest, to the issuing companies. Some of that advance payment may be lost to the cardholder since no change is given when the cardholders purchase amount is less than the amount designated on the card. Leftover monies are not generally of a large enough denomination to be used for additional purchases, and in many cases, are never retrieved. Generally speaking, there are no records being kept in relation to the amount bought, or by whom, or where nor the amount being spent, or by whom. Neither is there a report given to the possessor of the card about any balances that may be left. Recent changes in the law have altered card issuers' ability to access and use funds with which gift cards and other financial card products are funded. The funds are available to a card issuer for a period of 3-5 years, after which the funds escheat to the state government where the card was issued.
Most issuers have recently stopped charging service fees and are now required to include an expiration date on issued cards. Most card issuers are seeking additional ways to enhance the structure and delivery of gift cards because consumers continue to place more emphasis on prepaid shopping and more dollars on gift cards each year. While there are a variety of reasons for the rise in stored value and prepaid gift card the overwhelming reason for consumers is convenience.